Regulator Ofgem has increased network companies’ spending allowances by around 20% as it publishes its final determinations for the 2021-2026 RIIO-2 price control period.
The organisation has allowed £30bn of upfront funding, up from £25bn at draft determinations, with additional spending available where companies propose projects during the period which could help hit net zero targets across GB.
Spending through the ‘net zero reopeners’ could come to £10bn, the companies have indicated, including reinforcement to support offshore wind.
It will be subject to companies making good business cases, with no limit on the funding that could be provided.
Ofgem added that it was boosting funding for the electricity system operator to ensure that it “stands ready, as soon as 2026, to operate a zero-carbon emissions electricity system”.
The package affects gas and electricity transmission, National Grid ESO, and gas distribution. Electricity distribution companies have a separate price control that will begin in April 2023.
Ofgem has committed to working with companies and stakeholders to streamline its processes so that companies get funding without delay, when and where it’s needed, following criticism about the uncertainty the processes could cause.
It has also increased the allowed return on equity to 4.3%, from 3.95% at draft determinations.
Meanwhile, in a separate price control, Ofgem is boosting funding for the electricity system operator to ensure that it stands ready, as soon as 2026, to operate a zero carbon emissions electricity system.
Ofgem’s Chief Executive Jonathan Brearley said: “Our £40 billion package massively boosts clean energy investment.
“This will ensure that our network companies can deliver on the climate change ambitions laid out by the Prime Minister last week, whilst maintaining world-leading levels of reliability.
“These costs must fall fairly for consumers. We are reducing the amount paid to shareholders so that they are closer to current market levels. This means that companies can attract the vital investment we need whilst making sure that consumer don’t pay more than is necessary to achieve this.
SSEN Transmission said it welcomed the positive movement in its total expenditure (TOTEX) to £2.16bn but added that further work was needed to assess whether this was “commensurate with delivering the outputs stakeholders demanded and the investment required to deliver Governments’ net zero targets”.
It added that the next decade will be critical in making the progress required to place the country on a clear pathway to net zero emissions, and it would continue to review and assess the proposals and work with Ofgem to resolve “outstanding points of difference”.
“SSEN Transmission will continue to keep all options open to secure an ambitious, fair and balanced price control settlement”, it added.
ScottishPower chief executive Keith Anderson said: “We have today received Ofgem’s Final Determination for the RIIO-T2 price control, due to take effect on 1 April 2021.
“This is a large and complex document and we will now take our time to analyse it in full and consider our next steps.”
“We remain concerned that Ofgem’s proposals on the headline rate of return will not attract the global investment our transmission business requires if we are to support the clear Net Zero ambitions of the UK and Scottish Governments, including the Prime Minister’s Ten Point Plan.”